Final Results

Wednesday 19 February 2003 See below SERCO GROUP PLC Preliminary results for the year ended 31 December 2002 2002 Restated 2001* Turnover Â£1,325.9m Â£1,141.2m up 16.2% Profit before tax - pre goodwill Â£57.0m Â£45.2m up 26.3% Earnings per share - pre goodwill 9.58p 8.25p up 16.1% Dividend per share 2.08p 1.86p up 11.8% * The 2001 accounts have been restated after the adoption of UITF34 'Pre-contract costs' in 2002. HIGHLIGHTS - Serco delivers 15thsuccessive year of double-digit growth - Excellent organic growth - 64% of turnover growth from existing contract base - Robust cash performance - 75% of EBITDA converted to cash - Continued success in winning contracts - Contract wins totalling Â£1.2bn - 122 new contracts awarded - A further 180 contracts successfully rebid or extended, maintaining our 90% success rate - In January 2003 we won our largest-ever contract award: a 15-year extension to the Atomic Weapons Establishment contract, adding over Â£1bn to our forward order book - Substantial range of future opportunities - Currently addressing a further Â£12bn of opportunities - Continuing high visibility of revenues - 91% of 2003 turnover already secured - Current order book stands at Â£7.1bn Kevin Beeston, Executive Chairman, said: 'Serco has delivered another impressive performance - our 15th successive year of strong and profitable growth. In addition we have already secured 91% of our planned revenue for 2003 and 80% of our planned revenue for 2004. Our markets remain buoyant. Our forward order book continues to grow, and at Â£ 7.1bn, is roughly 5.5 times last year's turnover. We are currently addressing a further Â£12bn of opportunities across a range and scale of activities that ensures we can continue to bid selectively. Our portfolio approach to a wide range of public sector markets has provided a strong platform during this period of difficult global economic conditions. We remain confident of achieving double-digit growth both this year and over the longer term.' - Ends - WEBCAST A webcast of the results presentation will be available on from 17.00 hrs (GMT) on 19 February. CONFERENCE CALL There will be a teleconference today for investors and analysts. It will begin promptly at 16.30 hrs (GMT) and lines are open from 16.00 hrs. Early dial-in is recommended. Dial-in telephone numbers UK only 020 7162 0125 International +44 (0)20 7162 0125 US only +1 334 323 6203 Password Serco Group plc A recording of the teleconference will be accessible immediately after the conference ends, and will remain available up until 5 March 2003. The European replay number is: +44 (0) 20 8288 4459 - PIN number 390852 The US replay number is: +1 334 323 6222 - PIN number 390852 BUSINESS REVIEW A full review of operations in 2002 is available on www.serco.com For further information please contact Serco Group plc: T: +44 (0)1932 755900 Kevin Beeston - Executive Chairman Andrew Jenner - Finance Director Ben Woodford - Corporate Communications Director Chairman's Statement I am delighted to report another excellent performance - our 15th successive year of strong and profitable growth. Sales were up 16.2% and pre-tax profits rose 26.3% before goodwill, maintaining our record of consistently high growth. In delivering this growth we have continued to convert a high proportion of profits into cash while funding the working capital required to bid successfully and implement new business activities and contracts. This is a very satisfying result for a year that proved unsettling for the support services sector in the UK. Our vigorous organic growth reflects Serco's key strengths: our long-term contract base, ability to enhance customers' operations continuously, and long experience of delivering outsourced public services across a wide range of markets. We have a well-diversified portfolio, rigorous risk management processes integrated with the way we do business, and a selective approach to bidding. Contract wins during the year totalled Â£1.2bn. We won 122 new contracts, achieving our target of winning over half of new bids. In addition, we were awarded 180 rebids or extensions to existing contracts, maintaining our success rate of over 90% in this area. Financial performance Turnover grew 16.2% to Â£1.3bn. Pre-tax profits were up 26.3% to Â£57m before goodwill amortisation and by 22.2% to Â£48.9m after goodwill amortisation. There were no exceptional items in 2002. Earnings per share rose 16.1% to 9.58p before goodwill and 10.4% to 7.66p after goodwill. Cash generation remains robust with 75.1% of group EBITDA converted into cash. We raised Â£117.4m through an international placing of new shares in March. This was partly to refinance the September 2001 acquisition of AEA Technology's nuclear consulting business - now successfully integrated into Serco Assurance - and partly to strengthen the Balance Sheet to facilitate future growth. Since flotation in 1988 Serco has raised new equity totalling Â£161m, less than our acquisition costs of Â£180m over the same period. Apart from this, we have funded our growth from under Â£50m to over Â£1.3bn annual sales entirely from internally-generated cash flow. More sophisticated forms of contract inevitably mean more complex financial statements. In response, we have introduced Financial Review sections to our annual and interim results announcements and continue to extend our commentary on relevant aspects of accounting and corporate governance. To help investors understand better our Private Finance Initiative (PFI) projects we have also published Our approach to PFIs. The latest edition, updated in September 2002, is available on our website at www.serco.com or on request. Dividend The recommended final dividend of 1.44p per share gives a cumulative dividend for the year of 2.08p - an increase of 11.8% over 2001. It is proposed that the dividend will be paid on 13 May 2003 to shareholders on the register on 28 February 2003 (record date). Pensions The recent poor performance of the equity markets has impacted the group's defined benefit pension schemes. A valuation at 31 December 2002 has identified a net deficit of Â£73.6m in accordance with FRS 17 on our defined benefit schemes. This will result in additional funding and an additional profit and loss charge of Â£9m per annum. Notwithstanding this increase in contributions we remain on course to achieve good growth going forward. Chairman's Statement Operational performance Our business is made up of five distinct areas: defence (which accounted for 27% of 2002 sales), transport (27%), civil government (27%), science (9%) and private sector clients (10%). Within these sectors, revenues from PFI contracts accounted for 12% of total sales. The year was characterised by strong organic growth built on solid foundations: a track record of effectiveness that attracts and convinces new customers, strategic alliances with partners who enhance our capability and credibility, and an approach to working with customers that encourages partnerships, extensions and broadening of relationships. As in the past, a significant part of our turnover growth has come from add-ons and extensions to existing contracts. Major contract awards in 2002 included an innovative partnership with the UK's Ministry of Defence (MOD) Warship Support Agency to manage the Devonport, Portsmouth and Clyde marine services contract. This three-year partnership, worth up to Â£110m, builds on an earlier contract we have had since 1996. We also won a partnership contract to provide communications and information technology services to the Defence Scientific and Technical Laboratory, worth some Â£10m annually for up to eight years. As a member of the Paradigm Secure Communications team, which was selected in February 2002 as preferred bidder to provide and operate Skynet 5 global military satellite communications services, Serco will be providing network and facilities management. This is the largest UK MOD PFI to date, potentially worth some Â£220m to Serco over 15 years, and good progress continues to be made towards contract signature. As in any year there were a few disappointments - principally our unsuccessful bid to manage the Army Training Estate and Essex County Council's decision not to pursue the outsourcing of educational services. But disappointment over the Essex decision was tempered by continuing growth for our education business in Walsall: the local council transferred a further 300 staff to us, tripling the value of our contract to Â£100m over the remaining 5Â½ years. This followed a very favourable review of our performance by Ofsted, the education regulator, which led to a decision to transfer the majority of Walsall's Local Education Authority's activities to Serco. This was one of many cases where strong performance was rewarded with substantial contract extensions. Others included the National Crime Squad, which more than doubled the size of our partnership contract to support its IT operations and to design and develop its Intelligence Management System. In the US, the Federal Aviation Administration significantly broadened our role: we are already one of its largest private providers of air traffic control services, and it has now awarded us a contract to provide weather observation services. The largest addition of all - indeed, the largest contract ever awarded to the group - was announced in January this year, a 15-year extension to the contract under which we manage the UK's Atomic Weapons Establishment (AWE) in partnership with Lockheed Martin and British Nuclear Fuels (BNFL). The contract will now run until 2025, adding over Â£1bn to our forward order book. Our stature as a light rail operator continues to grow. For an unprecedented second year running we won the UK Rail Operator of the Year award, recognising our operational excellence and innovative customer service on London's Docklands Light Railway (DLR). We intend to build on our achievements with the DLR, Manchester Metrolink and Copenhagen Metro by selectively addressing additional rail operating opportunities. We have formed a joint venture with NedRailways, the international arm of Dutch national rail operator Nederlandse Spoorwegen, to pursue some of these. In the UK our strategy is to build on our contract base and to expand into new areas. While continuing to grow in our traditional markets, we seek out contracts that require greater managerial or technological sophistication, with structures that focus on outputs rather than specified inputs. We continue to bid for selected PFIs and expect our PFI projects to deliver sustained long-term benefits both to the public and to our investors. They and their associated service contracts will provide an income stream to supplement our revenues from traditional contracts. Under the auspices of the Confederation of British Industry (CBI) public services strategy board, we have joined other public service providers in a programme to promote better understanding of the benefits of public private partnerships. This aims to stress their importance and effectiveness in obtaining value for money and diversity in public service delivery. Chairman's Statement Our commitment to international diversification - with 30% of our current business turnover overseas - is one of the factors that differentiates us in our sector. But the sheer scale of opportunities open to us in the UK means that we have to be selective. In Europe we see particular opportunities in Italy and Germany, and are making encouraging progress in both. In the Middle East our activities and profile continue to develop well. In Asia Pacific we are focusing principally on Australia and New Zealand, where state governments continue to develop policies on public private partnerships. In North America we see public private partnerships emerging in both the US and Canada: these countries potentially represent a major long-term market for our skills and experience. To concentrate management and financial resources on the most promising opportunities and markets at home and abroad, we continue to review our business portfolio. This enables us to sharpen our focus on contracts offering superior growth, margins and cash generation, and may lead to minor divestments of certain activities. Risk management One of the keys to Serco's consistently robust performance is its management system and control framework. Our operations are diversified across some 600 contracts and a range of business sectors. Few contracts represent more than 2% of our turnover and the largest represents only 7%. The high degree of autonomy that we give to our contract managers is balanced by rigorous monitoring and unobtrusive but effective controls. In 2001 we set up our Corporate Assurance Group (CAG) to integrate our approach to assessing business risks and improving controls, and to ensure that we safeguard the interests of shareholders, customers, staff and the wider community. Reporting directly to the Board, CAG is proving a valuable asset in risk management. Corporate social responsibility Although Serco is a private sector business, we earn our living predominantly by delivering public services. We need to demonstrate a public service ethos, as a prerequisite of our partnership with public sector customers. We take our corporate social responsibility (CSR) seriously. Under our corporate governance framework every contract manager is directly accountable for CSR performance. We have established a global network of CSR champions to raise general awareness and support initiatives that range from developing an alternative water supply for Goose Bay residents in Canada to collecting tonnes of stationery for schools and orphanages in Kabul. We continue to refine our approach and are currently developing a new structure for charitable giving. This is designed to support initiatives by our contracts and individual employees, direct resources towards the communities where we work and recognise the personal commitment of Serco people. People Serco's continuing success comes from the outstanding dedication of our people and their personal identification with what they do. In a MORI survey of a cross section of staff, 95% regarded their work as `more than just a job'. Other positive indications - given our drive for continuous improvement and evolution to meet customer needs - were that around three quarters said they understood workplace objectives and the need for change, and two thirds actively supported the change process. We are grateful for all our people's energy, enthusiasm and imagination - which add value both to our business and to our customers' operations. We continue to build constructive relationships with trade unions. In the UK we support the Partnership Institute launched by the Trades Union Congress (TUC) to foster co-operative relationships between employers and unions. We have formed a number of `working partnerships' with unions at contract level and are investigating further opportunities. To support and sustain our growth, we attach great importance to training and developing our managers. During the year the Serco Best Practice Centre provided courses and workshops in the UK, Europe, North America and the Middle East, and our global intranet played an important role by giving people access to training and development online. In a ground-breaking partnership with the UK's Institute of Directors (IoD) we have developed a joint IoD/Serco Certificate in Company Direction assessed and recognised by the IoD. The first 19 Serco managers were awarded the qualification during the year. Chairman's Statement Outlook The committed future income streams from our contracts give us the assurance of highly visible revenues and profits. At the time of writing we have already secured 91% of our planned revenue for 2003 and 80% of our planned revenue for 2004. Our forward order book continues to grow. On 31 December it stood at Â£6.1bn, and it now stands at Â£7.1bn - roughly 5.5 times last year's turnover. We are currently addressing over Â£12bn of opportunities and our markets are buoyant. Both at home and abroad, opportunities are emerging at a rate which continues to allow us to bid selectively. Our portfolio approach to a wide range of public sector markets has provided a strong growth platform during this period of difficult global economic conditions. We remain confident of achieving double-digit growth both this year and over the longer term. Financial Review For the year ended 31 December 2002 1 PROFIT AND LOSS ACCOUNT 2002 was another year of strong performance and is further analysed below: 2002 Restated* Change 2001 Â£m Â£m % Total turnover 1,325.9 1,141.2 16.2% Group turnover 1,097.3 913.7 Joint venture turnover 228.6 227.5 Gross profit 150.0 124.0 20.9% Other administrative expenses (112.8) (97.6) Exceptional items - 5.2 Joint venture profit 23.9 18.7 Group interest (4.1) (5.1) Profit before goodwill and tax 57.0 45.2 26.3% Goodwill (8.1) (5.1) Profit before tax 48.9 40.1 Tax (16.6) (13.0) Profit after tax 32.3 27.1 Effective tax rate 34% 32.5% Average number of shares 421.8m 389.6m Earnings per share before goodwill 9.58p 8.25p 16.1% Earnings per share after goodwill 7.66p 6.94p * The 2001 accounts have been restated after the adoption of UITF Abstract 34 'Pre-contract costs' in 2002 (see `Bid costs' below for more information). 1.1 Turnover Total turnover increased by 16.2% to Â£1,325.9m. This includes a contribution of Â£43.3m (2001: Â£12.1m) from Serco Assurance (formerly the nuclear consulting division of AEA Technology), which was acquired in September 2001. 1.2 Gross profit Gross profit of Â£150.0m increased by 20.9% and represents a return on group turnover of 13.7% (2001: 13.6%). 1.3 Pre tax profit Pre tax profit before goodwill amortisation increased 26.3% to Â£57m. Financial Review For the year ended 31 December 2002 1.4 Underlying pre tax profit There were no exceptional items in 2002. In order to allow comparison of the year on year results the growth in underlying pre tax profit is shown below: Restated 2002 2001 Change Â£m Â£m % Reported pre tax profit before goodwill 57.0 45.2 26.3% amortisation 2001 Acquisition: Serco Assurance (2.1) (0.5) Prior year adjustment: UITF Abstract 34 - 1.2 Net one-off items - (0.2) Underlying pre tax profit before goodwill 54.9 45.7 20.1% amortisation Underlying pre tax profit grew 20.1% to Â£54.9m. Underlying profits are stated after: - a Â£2.1m (2001: Â£0.5m) contribution from Serco Assurance, - a prior year adjustment of Â£1.2m in 2001 made on the adoption of UITF Abstract 34 in 2002; this is explained in greater detail in `Bid costs', and - a net contribution in 2001 of Â£0.2m from three one-off items. 1.5 Tax The tax charge for 2002 was Â£16.6m (2001: Â£13.0m), representing an effective tax rate of 34.0% (2001: 32.5%). The increase in the effective rate is largely as a result of an increased year-on-year level of goodwill amortisation. 1.6 Earnings per share Taking into account the above and the increased capital base resulting from the equity placing in March, earnings per share before goodwill amortisation grew by 16.1% to 9.58p. 2 DIVIDENDS The proposed final dividend of 1.44p per share gives a cumulative dividend for 2002 of 2.08p, an 11.8% increase on 2001. 3 SHARE PLACEMENT In March Â£117.4m (net of fees) was successfully raised through an international bookbuilt placing of 39.5m new shares representing 9.9% of Serco's issued share capital. This enabled the Serco Assurance acquisition finance to be repaid and the Balance Sheet to be strengthened to facilitate future growth. Since flotation in 1988 Serco has raised new equity totalling Â£161m, roughly equivalent to our acquisition costs of Â£180m over the same period. Apart from this, we have funded our growth from under Â£50m to over Â£1.3bn of annual sales entirely from internally generated resources. Financial Review For the year ended 31 December 2002 4 CASH FLOW During the year there was a net cash inflow of Â£105.2m. This inflow was after a one-off payment of Â£15.5m into the Serco Pension & Life Assurance Scheme in February and includes Â£117.4m from a share placing in March. This cash inflow contributed to the reduction in Group net debt/funds, excluding non-recourse PFI debt, from Â£(93.5)m to Â£6.3m respectively, as detailed below: 2002 2001 Â£m Â£m Operating profit before one-off items 29.1 21.3 Non cash items - Depreciation and goodwill 23.6 18.3 Group EBITDA 52.7 39.6 Working capital movement (13.1) (13.9) Operating cash flows before one-off items 39.6 25.7 Pension payment (15.5) - Exceptional items - 6.1 Dividends from joint ventures 11.1 9.6 Interest and taxation (11.9) (12.0) Capital expenditure (23.6) (17.6) Disposals of tangible assets 8.1 4.6 Other items 1.9 (7.5) Free cash flow 9.7 8.9 Acquisitions/disposals (10.3) (73.6) Share issues 117.9 2.0 Other financing (3.8) (11.9) Dividends paid (8.3) (6.7) Net cash flow 105.2 (81.3) Closing cash/(overdraft) 69.4 (35.8) Long term loans (47.4) (45.6) Other loans and finance leases (15.7) (12.1) Recourse net cash/(debt) 6.3 (93.5) 4.1 Operating cash flow before one-off items Operating cash flow, before one-off items, was up 54% to Â£39.6m (2001: Â£25.7m), which converts 136% (2001: 121%) of our operating profit into cash. We believe that, as operating profit is calculated after deducting goodwill and depreciation, the appropriate measure for operating cash flow performance is the conversion of Group EBITDA (Earnings Before Interest, Tax, Depreciation and Goodwill Amortisation) before one-off items into operating cash flows. For 2002 this was 75.1% (2001: 64.9%). The working capital movement reflects the strong level of organic growth shown by the Group in 2002 and equates to approximately one months incremental turnover, reflecting the typical invoicing cycle of our contracts. 4.2 Joint ventures Serco has two types of joint ventures: those which represent traditional operating contracts, such as the Atomic Weapons Establishment (AWE) and Premier Custodial Group (PCG); and those reflecting Serco's equity stakes of up to 50% in PFI Special Purpose Companies (SPCs). Dividends received from joint ventures during 2002 of Â£11.1m (2001: Â£9.6m) represents a 67% (2001: 76%) conversion of profit of joint ventures, after tax, into cash. Financial Review For the year ended 31 December 2002 4.3 Capital expenditure Capital expenditure, excluding investment in PFI SPCs, for the year was Â£23.6m (2001: Â£17.6m). As a proportion of Group turnover this expenditure represents 2% and has remained at a similar level to previous years. 4.4 Net debt In addition to the recourse debt shown in the table above, the Group has a non-recourse loan to fund the construction of the Traffic Control Centre (see PFIs below). At the end of 2002 this loan was Â£29.7m (2001 Â£14.1m). Non-recourse debt is excluded from the Group's banking facility covenants but is presented as a liability in the Group's Balance Sheet. 5 PENSIONS In 2002, two of Serco's pension schemes were accounted for as defined benefit schemes. The total 2002 pension charge for Serco was Â£29.1m (2001: Â£19.5m), with the two UK defined benefit schemes having a cost of Â£12.5m (2001: Â£9.3m). FRS 17 'Retirement Benefits' was issued in November 2000 to replace SSAP 24 for accounting periods ending on or after 22 June 2003. In July 2002 the Accounting Standards Board delayed the introduction of FRS 17 until 2005, following an announcement by the International Accounting Standards Board that it would also issue a new standard. For 2002 we have continued to apply the transitional rules and disclosures. FRS 17 requires the market value of assets and liabilities for defined benefit schemes to be calculated and included in the Balance Sheet. At 31 December 2002 we estimate there was a net deficit of Â£73.6m in relation to the defined benefit schemes and an asset base of approximately Â£294.4m, whilst the Minimum Funding Rate (MFR) funding level was 100%. Long term company contribution rates will increase by approximately Â£9m per annum from 2003. In February 2003 we merged Serco's two defined benefit pension schemes to achieve cost and investment efficiencies. To assist this process Â£15.5m was injected into the Serco Pension and Life Assurance Scheme in February 2002 to achieve a similar funding level for both schemes. The investment profile of the merged scheme will be kept under continuous review to match the asset and liability profiles. 6 PRIVATE FINANCE INITIATIVES (PFIs) 6.1 Disclosure The document `Our Approach to PFIs', which was originally issued in 2001, was updated in September 2002 and provides a summary of our accounting for PFIs. It is available on our website www.serco.com or in printed form on request. 6.2 PFI Profile For 2002 PFIs contributed Â£154.0m to turnover and Â£17.7m to profit before tax for the year, of which Â£110.4m of the turnover and Â£6.4m of the profit related to the operating contracts, and Â£43.6m of the turnover and Â£11.3m of the profit to Serco's share of the SPCs. Financial Review For the year ended 31 December 2002 6.3 SPC funding SPC funding is via long term loans which are non-recourse to Serco. - Our share of non-recourse debt of joint venture SPCs at the end of 2002 is Â£ 206.7m. This is included as a liability within investments in joint ventures on our Balance Sheet. - Traffic Information Services (TIS) Limited is the first SPC where Serco has chosen to own 100% of the equity. This SPC has the contract to deliver the Traffic Control Centre (TCC) contract. A non-recourse loan of Â£29.7m to fund the asset, currently in the course of construction, is included in long term creditors in the Balance Sheet. Construction completion is anticipated in early 2004 when the non-recourse loan will equate to approximately Â£60m. - In June 2002 the lenders to the Joint Services Command and Staff College (JSCSC) PFI agreed to change the terms of the senior debt. This transaction had no effect on profit but allowed Â£6.7m of cash to be paid from the SPC to Serco by way of dividend and loan. 7 REVIEW OF JOINT VENTURE ACCOUNTING AND CONTROLS In March 2002, in recognition of the perceived uncertainties arising from certain joint venture accounting practices in the US, the Board undertook a specific review, including asking Deloitte & Touche to undertake an independent review of our accounting procedures and internal controls over our joint ventures. This review confirms the Board's view that all our joint ventures exist for genuine commercial reasons, are correctly accounted for and that our controls and disclosures are appropriate. 8 BID COSTS Urgent Issues Task Force (UITF) Abstract 34 ' Pre-contract costs' was issued in May 2002 for accounting periods ending on or after 22 June 2002. UITF Abstract 34 requires all bid costs to be expensed up to the point where award of a contract is `virtually certain'. Bid costs incurred after this point may be capitalised. At 31 December 2001 we had Â£1.2m of bid costs capitalised in relation to contracts for which we had not reached preferred bidder status. Applying the Abstract has resulted in a small prior year adjustment to treat these capitalised costs as expensed in 2001. Having made this adjustment our accounting policies now fully comply with UITF Abstract 34. 9 DEFERRED TAXATION Financial Reporting Standard (FRS) 19 `Deferred Taxation' was issued in December 2000 for accounting periods ended on or after 23 January 2002. FRS 19 requires full provision to be made for deferred tax assets and liabilities arising from timing differences between the recognition of gains and losses in the financial statements and their recognition in a tax computation. The tax charge for the year has been calculated in accordance with FRS 19. The adoption of FRS 19 has not had a material effect on the tax charge, as the Group did not have a material level of unprovided deferred tax liabilities or unrecognised deferred tax assets. 10 TREASURY POLICIES 10.1 Treasury management The Group's tax and treasury function is responsible for managing the Group's exposure to financial risk. It operates within policies approved and reviewed by the Board, which include controls on the use of financial instruments. The Group reviews the credit quality of counterparties and limits individual aggregate credit exposures accordingly. Financial Review For the year ended 31 December 2002 10.2 Liquidity management The Group funds its operations through bilateral bank credit facilities and a long term US Private Placement of loan notes (`the US Notes'). Borrowings under the bank facilities are floating rate, unsecured, obligations with covenants and obligations typical of these type of arrangements. At the end of 2002 bank facilities totalled Â£161m, of which Â£50m was committed funding and of which Â£151m was undrawn. The committed bank facilities mature in November 2005. The US Notes mature in December 2007. 10.3 Foreign exchange risk Due to the nature of the Group's business, which in general does not involve a significant amount of cross-border trade, the Group is not exposed to material foreign currency transaction risk, as sales and costs are approximately matched within overseas operations. The Group does not hedge the sterling equivalent of the net assets of its overseas operations on the grounds that the market value of these businesses does not represent a significant proportion of the market value of the Group and because foreign exchange differences are unlikely to have a material effect on the consolidated net asset value of the Group. The US Notes were issued in US Dollars but the principal obligation has been swapped into sterling consistent with the risk profile set out above. 10.4 Interest rate risk The Group's exposure to interest rate fluctuations on its borrowings and deposits is selectively managed, using interest rate swaps. The element of the US Notes that has not been swapped into floating rates is considered to offer adequate protection from interest rate fluctuations in the current market and given the Group's current low level of net debt. All shorter term debt is maintained at floating rates of interest. Consolidated Profit and Loss Account For the year ended 31 December 2002 Restated 2002 Restated 2001 Restated 2002 Joint 2002 2001 Joint 2001 Ventures Total Ventures Group Group Total Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover: Group and 2 1,097,278 228,670 1,325,948 913,693 227,510 1,141,203 share of joint ventures-continuing operations Less: Share of 2 - (228,670) (228,670) - (227,510) (227,510) joint ventures Group turnover 2 1,097,278 - 1,097,278 913,693 - 913,693 Cost of sales (947,313) - (947,313) (789,686) - (789,686) Gross profit 149,965 - 149,965 124,007 - 124,007 Administrative (120,862) - (120,862) (102,753) - (102,753) expenses Amortisation of (8,098) - (8,098) (5,123) - (5,123) intangible assets Other (112,764) - (112,764) (97,630) - (97,630) administrative expenses Exceptional item: - - - (10,187) - (10,187) Unsuccessful NATS acquisition Operating 29,103 - 29,103 11,067 - 11,067 profit-continuing operations Exceptional Item: - - - 15,356 - 15,356 GSR refinancing Share of operating - 21,883 21,883 - 17,374 17,374 profit in joint ventures Interest receivable 4 1,422 16,894 18,316 2,207 17,102 19,309 Group 1,422 - 1,422 2,207 - 2,207 Share of joint - 16,894 16,894 - 17,102 17,102 ventures Interest payable 5 (5,486) (14,875) (20,361) (7,299) (15,768) (23,067) and similar charges Group (5,486) - (5,486) (7,299) - (7,299) Share of joint - (14,875) (14,875) - (15,768) (15,768) ventures Profit on ordinary 6 25,039 23,902 48,941 21,331 18,708 40,039 activities before taxation Taxation on profit 7 (16,639) (13,012) on ordinary activities Profit on ordinary 32,302 27,027 activities after taxation Dividends 8 (9,441) (7,265) Retained profit for 23 22,861 19,762 the financial year Earnings per Share 9 ('EPS') per Ordinary Share of 2p each Basic EPS, after 7.66p 6.94p amortisation of goodwill Basic EPS, before 9.58p 8.25p amortisation of goodwill Diluted EPS, after 7.63p 6.91p amortisation of goodwill Diluted EPS, before 9.54p 8.22p amortisation of goodwill The basis of preparation of this preliminary announcement and the effect of the prior year restatement is set out in Note 1. The financial information set out herein does not constitute the Company's statutory accounts for the years ended 31 December 2002 or 2001, but is derived from those accounts. Statutory accounts for 2001 have been delivered to the Registrar of Companies and those for 2002 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts, their reports were unqualified and did not contain statements under s237 (2) or (3) Companies Act 1985. Consolidated Balance Sheet At 31 December 2002 Restated 2002 2001 Note Â£'000 Â£'000 Fixed Assets Intangible assets 10 147,473 141,170 Tangible assets 11 62,479 48,724 Investments in joint ventures 12 35,883 30,510 Share of gross assets 317,831 322,338 Share of gross liabilities (281,948) (291,828) Investment in own shares 12 18,207 18,983 264,042 239,387 Current assets Stocks 13 38,744 35,838 Debtors: Amounts due within one year 14 220,042 199,705 Debtors: Amounts due after more than one year 14 108,932 76,105 Cash at bank and in hand 17 71,774 34,812 439,492 346,460 Creditors: Amounts falling due within one year Bank loans and overdrafts 16 2,386 70,647 Trade creditors 74,377 58,034 Other creditors including taxation and social 15 93,843 100,621 security Accruals and deferred income 136,766 128,629 Proposed dividend 8 6,184 5,026 313,556 362,957 Net current assets/(liabilities) 125,936 (16,497) Total assets less current liabilities 389,978 222,890 Creditors: Amounts falling due after more than 16 87,588 68,570 one year Provisions for liabilities and charges 18 34,533 25,249 Net assets 267,857 129,071 Capital and reserves Called up share capital 21 8,697 7,903 Share premium account 22 190,791 73,656 Capital redemption reserve 143 143 Profit and loss account 23 68,226 47,369 Equity shareholders' funds 20 267,857 129,071 This preliminary announcement was approved by the Board of Directors on 19 February 2003 and signed on behalf of the board: Kevin Beeston Executive Chairman Andrew Jenner Finance Director Company Balance Sheet At 31 December 2002 2002 2001 Note Â£'000 Â£'000 Fixed Assets Tangible assets 11 2,309 1,682 Investments in subsidiaries 12 141,418 35,598 143,727 37,280 Current Assets Amounts owed by subsidiary companies due after 111,426 148,183 more than one year Debtors: Amounts due within one year 14 21,669 14,820 Debtors: Amounts due after more than one year 14 1,297 - Cash at bank and in hand 17,753 - 152,145 163,003 Creditors: Amounts falling due within one year Bank loans and overdrafts 16 - 30,245 Trade creditors 1,066 757 Other creditors including taxation and social 15 688 1,077 security Accruals and deferred income 6,395 5,098 Proposed dividend 8 6,184 5,026 14,333 42,203 Net current assets 137,812 120,800 Total assets less current liabilities 281,539 158,080 Creditors: Amounts falling due after more than one 16 43,784 41,420 year Provisions for liabilities and charges 18 335 - Net Assets 237,420 116,660 Capital and reserves Called up share capital 21 8,697 7,903 Share premium account 22 190,791 73,656 Capital redemption reserve 143 143 Profit and loss account 23 37,789 34,958 Equity shareholders' funds 237,420 116,660 This preliminary announcement was approved by the Board of Directors on 19 February 2003 and signed on behalf of the Board: Kevin Beeston Executive Chairman Andrew Jenner Finance Director Consolidated Cash Flow Statement For the year ended 31 December 2002 2002 Restated 2001 Note Â£'000 Â£'000 Operating profit before cost of unsuccessful NATS 29,103 21,254 acquisition Exceptional item: Cost of unsuccessful NATS - (10,187) acquisition Operating profit 29,103 11,067 Depreciation and amortisation of goodwill 23,632 18,283 Net increase in working capital (13,124) (13,866) One-off pension fund contribution (15,500) - Net cash inflow from operating activities before 24,111 15,484 PFI asset expenditure Expenditure on PFI asset under construction * (14,950) (13,733) Net cash inflow from operating activities after PFI 24 9,161 1,751 asset expenditure Dividends received from joint ventures 11,095 9,645 Returns on investment and servicing of finance Interest received 1,223 578 Interest paid (7,362) (6,182) Net cash outflow from returns on investments and (6,139) (5,604) servicing of finance Taxation Tax paid (5,738) (6,417) Capital expenditure and financial investment Purchase of tangible and intangible fixed assets (23,596) (17,626) Sale of tangible fixed assets 8,125 4,569 Exceptional item: GSR refinancing - 16,343 Security deposit on PFI asset under construction - (6,000) Net cashflows with joint ventures 1,235 (1,945) Purchase of own shares - (9,964) Net cash outflow from capital expenditure and (14,236) (14,623) financial investment Acquisitions and disposals Acquisitions 12 (11,353) (77,106) Net cash acquired with acquisitions 397 3,558 Subscription for shares in joint ventures 12 (370) (38) Proceeds on disposal of joint ventures 1,030 - Net cash outflow from acquisitions and disposals (10,296) (73,586) Equity dividends paid Dividends paid (8,283) (6,664) Net cash outflow from equity dividends paid (8,283) (6,664) Net cash outflow before financing (24,436) (95,498) Financing Issue of Ordinary Share Capital 117,929 2,001 Debt due within one year: (Decrease)/increase in (300) 100 other loans Debt due beyond one year: Increase in: 15,624 14,850 Other loans 24 750 Non-recourse debt financing PFI asset * 15,600 14,100 Capital element of finance lease repayments (3,594) (2,785) Net cash inflow from financing 129,659 14,166 Increase/(decrease) in cash 105,223 (81,332) Balance at 1 January (35,835) 45,497 Balance at 31 December 69,388 (35,835) *PFI asset under construction financed by non-recourse loan Consolidated Statement of Total Recognised Gains and Losses For the year ended 31 December 2002 2002 Restated 2001 Â£'000 Â£'000 Profit on ordinary activities after taxation 32,302 27,027 Currency translation differences on foreign currency (1,911) (1,917) net investments Total recognised gains and losses for the year 30,391 25,110 Prior year adjustment (see Note 1) (806) Total gains and losses recognised since last annual 29,585 report and financial statements Notes to the Preliminary Announcement For the year ended 31 December 2002 1 Accounting policies This preliminary announcement has been prepared in accordance with applicable UK accounting standards, and the particular accounting policies adopted are detailed below. These have all been applied consistently with the exception of bid costs which is explained in the restatement below. Accounting convention This preliminary announcement has been prepared under the historical cost convention. Basis of consolidation The preliminary announcement consolidates the financial information of the Company and its subsidiaries, and equity accounts for its share of joint ventures made up to 31 December of each year, for the periods they are owned by Serco Group plc. Restatement The 2001 financial information has been restated to reflect the impact of the Urgent Issues Task Force Abstract 34 ('UITF34') - Pre-Contract Costs; eliminating Â£1,193,000 of bid costs, previously disclosed within debtors, and the associated tax effect of Â£387,000. The impact of this adjustment in the 2002 financial information is a reduction in amortisation of bid costs of Â£ 400,000. The Profit and Loss Account has been restated to reclassify `Other operating costs relating to joint ventures' within `Other administrative expenses'. Accounting for PFI Contracts Within Public Private Partnership (PPP) projects (including Private Finance Initiative (PFI) projects), where the concession agreement transfers limited risks and rewards associated with ownership to the contractor, the costs incurred during the period of initial asset construction, as a direct consequence of financing, designing and constructing the asset, are shown as 'assets in the course of construction' within current assets. On completion of the asset construction phase the asset is transferred to debtors as 'amounts receivable under PPP contracts'. Revenues received from the customer are apportioned between capital repayments and operating revenue. The `finance income' element of the capital repayment is shown within interest receivable. Serco has one Special Purpose Company - TCC (Traffic Control Centre), where the results are fully consolidated. All other SPCs are classified as joint ventures and accounted for using the gross equity method. Pension costs: Defined benefit schemes Retirement benefits to employees of Group companies, except in Germany, are funded by contributions from Group companies and employees. Payments are made to trust funds which are financially separate from the Group in accordance with periodic calculations by consulting actuaries. The expected cost to the Group of providing defined benefit pensions is charged to the Profit and Loss Account so as to spread the cost of pensions over the average service lives of employees in the schemes, in such a way that the cost is a substantially level percentage of payroll cost, with experience surpluses and deficits being amortised on a straight line basis. In Germany retirement benefits to employees are accrued for by Serco GmbH & Co. KG. The expected cost to the Company for providing defined benefit pensions is calculated in accordance with periodic valuations by consulting actuaries. Pension costs: Defined contribution schemes Contributions for the year in respect of defined contribution schemes are charged to the Profit and Loss Account. Differences between charges accruing during the year and cash payments are included as either accruals or prepayments in the Balance Sheet. The Group has adopted the transitional disclosure requirements of Financial Reporting Standard 17 ('FRS17') - Retirement Benefits. For further information see Note 31. Turnover Turnover represents net sales of goods and services to third parties together with investment related income. Goodwill Goodwill arising on acquisitions is capitalised in the Consolidated Balance Sheet in accordance with Financial Reporting Standard 10 ('FRS 10') - Goodwill and Intangible Assets. Amortisation of goodwill is provided on a straight line basis over a period of 20 years, which, in the opinion of the Directors is a period not exceeding the economic useful life of the asset. Notes to the Preliminary Announcement For the year ended 31 December 2002 1 Accounting policies (continued) Current Tax Current tax, including UK Corporation Tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted at the Balance Sheet date. Fixed asset investments: Subsidiaries Investments held as fixed assets are stated at cost less provision for any impairment in value. Fixed asset investments: Joint ventures In the consolidated preliminary announcement, investments in joint ventures are accounted for using the gross equity method of accounting in accordance with Financial Reporting Standard 9 ('FRS 9') - Associates and Joint Ventures. The Group Consolidated Profit and Loss Account includes the Group's share of joint ventures' operating profits and interest, and the attributable taxation. In the Consolidated Balance Sheet, the Group's share of the net assets of its joint ventures, which includes several PFIs, is included under the heading 'investments in joint ventures'. The share of net assets is split between gross assets and gross liabilities. Fixed asset investment: Own shares Investment in own shares represents shares in Serco Group plc held by the Serco Group plc 1998 Employee Share Ownership Trust ('the Trust'). The dividends on these shares have been waived. Investment in own shares is stated at cost less provision for impairment. The Trust is a discretionary trust for the benefit of the employees and shares are held to satisfy the Group's liabilities to employees for share options and long term incentive plans. The net cost to the Group of these schemes is charged to the Profit and Loss Account over the performance period during which the benefits are earned by employees. Leases Assets obtained under finance leases are capitalised at their fair value on acquisition and depreciated over the shorter of their estimated useful lives or lease term. The finance charges are allocated over the period of the lease in proportion to the capital element outstanding. Rentals on assets under operating leases are charged to the Profit and Loss Account in equal annual amounts. Depreciation Depreciation is provided on a straight line basis at rates which, in the opinion of the Directors, reduce the assets to their residual value over their estimated useful lives. The principal annual rates used are: Freehold buildings 2.5% Short leasehold building The higher of 10% or rate produced by lease improvements term Machinery 15% - 20% Motor vehicles 18% - 50% Furniture 10% Office equipment 20% - 33% Leased equipment The higher of the rate produced by either lease term or useful life Stocks Stocks are stated at the lower of cost and net realisable value. Cost includes an appropriate proportion of direct material and labour. Long term contracts Long term contract balances represent costs incurred on specific contracts, net of amounts transferred to cost of sales in respect of work recorded as turnover by reference to the value of the work carried out to date. No profit is recognised until the contract has advanced to a stage where the total profit can be assessed with reasonable certainty. Advance payments are included in creditors to the extent that they exceed the related work in progress. Pre-contract costs All bid costs are expensed through the Profit and Loss Account up to the point where contract award is virtually certain in accordance with UITF 34. Bid costs incurred after this point are then capitalised within debtors. On contract award these bid costs are amortised through the Profit and Loss Account on a straight line basis over the contract period. Notes to the Preliminary Announcement For the year ended 31 December 2002 1 Accounting policies (continued) Deferred taxation The charge for taxation takes account of taxation deferred because of differences between the timing of recognition of certain items for taxation purposes and for accounting purposes. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the Balance Sheet date where the transactions or events that give rise to an obligation to pay more or less tax in the future have occurred by the Balance Sheet date. A deferred tax asset is recognised only when it is considered more likely than not that it will be recovered. Deferred tax is recognised on a non-discounted basis using tax rates in force at the Balance Sheet date. Financial Reporting Standard 19 ('FRS 19') - Deferred Tax has been adopted for the first time in this preliminary announcement and there is no material effect on the comparative figures. Basis of translation of foreign currencies Transactions of UK companies denominated in foreign currencies are translated into Sterling at the rate ruling at the date of the transaction. Amounts receivable and payable in foreign currencies at the Balance Sheet date are translated at the rates ruling at that date and any differences arising are taken to the Profit and Loss Account. The financial information of overseas subsidiary companies and associated undertakings is translated into Sterling at the closing rates of exchange at the Balance Sheet date and any difference arising from the translation of the opening net investment and matched long term foreign currency borrowings is taken directly to reserves. The Profit and Loss Account is translated using average exchange rates. Notes to the Preliminary Announcement For the year ended 31 December 2002 2 Segmental Report Classes of Business Joint Group Ventures Total 2002 Â£'000 Â£'000 Â£'000 Turnover Civil Government 267,127 89,220 356,347 Defence 228,579 134,654 363,233 Transport 347,815 4,796 352,611 Science 115,603 - 115,603 Private sector 138,154 - 138,154 Total 1,097,278 228,670 1,325,948 Profit before taxation and other costs Civil Government 17,796 5,287 23,083 Defence 13,259 15,956 29,215 Transport 15,126 640 15,766 Science 9,845 - 9,845 Private sector 6,909 - 6,909 Total 62,935 21,883 84,818 Other costs Common costs (25,734) Amortisation of intangible assets (8,098) Net interest - Group (4,064) Net interest - Joint ventures 2,019 Profit on ordinary activities before taxation 48,941 Net assets Civil Government 43,269 Defence 53,400 Transport 45,716 Science 69,771 Private sector 31,679 Total 243,835 Unallocated assets 24,022 Total 267,857 Notes to the Preliminary Announcement For the year ended 31 December 2002 2 Segmental Report (continued) Classes of Business Joint Restated Group Ventures Total 2001 Â£'000 Â£'000 Â£'000 Turnover Civil Government 202,605 107,917 310,522 Defence 218,001 115,349 333,350 Transport 275,888 4,244 280,132 Science 87,404 - 87,404 Private sector 129,795 - 129,795 Total 913,693 227,510 1,141,203 Profit before taxation and other costs Civil Government 13,271 5,169 18,440 Defence 11,312 11,996 23,308 Transport 14,179 209 14,388 Science 4,907 - 4,907 Private sector 6,778 - 6,778 Total 50,447 17,374 67,821 Other costs Common costs (24,070) Exceptional item: Cost of unsuccessful NATS (10,187) acquisition Exceptional item: GSR refinancing 15,356 Amortisation of intangible assets (5,123) Net interest - Group (5,092) Net interest - Joint ventures 1,334 Profit on ordinary activities before taxation 40,039 Net assets Civil Government 33,517 Defence 36,282 Transport 27,044 Science 903 Private sector 14,246 Total 111,992 Unallocated assets 17,079 Total 129,071 Notes to the Preliminary Announcement For the year ended 31 December 2002 2 Segmental Report (continued) Geographical segments Joint Group Ventures Total 2002 Â£'000 Â£'000 Â£'000 Turnover United Kingdom 752,247 178,207 930,454 Rest of Europe and Middle East 163,218 7,341 170,559 Asia Pacific 116,671 38,406 155,077 North America 65,142 4,716 69,858 Total 1,097,278 228,670 1,325,948 Profit before taxation and other costs United Kingdom 35,065 19,029 54,094 Rest of Europe and Middle East 12,895 625 13,520 Asia Pacific 9,503 1,750 11,253 North America 5,472 479 5,951 Total 62,935 21,883 84,818 Other costs Common costs (25,734) Amortisation of intangible assets (8,098) Net interest - Group (4,064) Net interest - Joint ventures 2,019 Profit on ordinary activities before taxation 48,941 Net assets United Kingdom 142,821 Rest of Europe and Middle East 43,951 Asia Pacific 40,057 North America 17,006 Total 243,835 Unallocated assets 24,022 Total 267,857 Note: Turnover is shown by geographical origin. Turnover analysed by geographical destination is not materially different. Notes to the Preliminary Announcement For the year ended 31 December 2002 2 Segmental Report (continued) Geographical segments Joint Restated Group Ventures Total 2001 Â£'000 Â£'000 Â£'000 Turnover United Kingdom 618,559 175,641 794,200 Rest of Europe and Middle East 130,608 8,876 139,484 Asia Pacific 103,414 38,588 142,002 North America 61,112 4,405 65,517 Total 913,693 227,510 1,141,203 Profit before taxation and other costs United Kingdom 26,988 14,068 41,056 Rest of Europe and Middle East 10,041 720 10,761 Asia Pacific 8,597 1,871 10,468 North America 4,821 715 5,536 Total 50,447 17,374 67,821 Other costs Common costs (24,070) Exceptional item: Cost of unsuccessful NATS (10,187) acquisition Exceptional item: GSR refinancing 15,356 Amortisation of intangible assets (5,123) Net interest - Group (5,092) Net interest - Joint ventures 1,334 Profit on ordinary activities before taxation 40,039 Net assets United Kingdom 64,563 Rest of Europe and Middle East 9,278 Asia Pacific 30,919 North America 7,232 Total 111,992 Unallocated assets 17,079 Total 129,071 Note: Turnover is shown by geographical origin. Turnover analysed by geographical destination is not materially different. Notes to the Preliminary Announcement For the year ended 31 December 2002 3 Information regarding Directors and employees 2002 2001 Â£'000 Â£'000 a) Directors' remuneration: Fees as Directors 97 83 Other emoluments 1,730 1,319 Total remuneration excluding pensions 1,827 1,402 The prior year comparative includes Directors who did not serve in 2002. 2002 2001 Â£'000 Â£'000 b) Employee costs including Directors: Wages and salaries 444,693 399,447 Social security costs 36,713 36,376 Other pension costs (Note 31) 29,096 19,544 Long Term Incentive Scheme costs 776 661 511,278 456,028 2002 2001 c) Number of persons employed by Serco Group plc and its subsidiaries Average number of persons employed in the provision of services: Civil Government 7,138 6,738 Defence 6,251 6,491 Transport 4,442 4,653 Science 1,665 1,460 Private sector 2,999 2,445 Non-specific 202 116 22,697 21,903 Notes to the Preliminary Announcement For the year ended 31 December 2002 4 Interest receivable 2002 2001 Â£'000 Â£'000 Short term deposits 818 1,484 Loans to joint ventures 604 723 Total Group 1,422 2,207 Share of joint venture interest 16,894 17,102 18,316 19,309 5 Interest payable and similar charges 2002 2001 Â£'000 Â£'000 Bank loans and overdrafts 5,486 7,299 Share of joint venture interest 14,875 15,768 20,361 23,067 6 Profit on ordinary activities before taxation 2002 2001 Â£'000 Â£'000 Profit on ordinary activities before taxation is after charging: Rentals under operating leases: Land and buildings 12,599 11,790 Plant and machinery 20,686 17,586 Depreciation on tangible assets: Owned 12,307 10,861 Held under finance leases 3,227 2,299 Finance lease interest on operational assets 721 454 Amortisation of goodwill and intangible assets 8,098 5,123 Auditors' remuneration: Deloitte & Touche 514 444 Other auditors 175 125 Other fees paid to Deloitte & Touche: Bid support 1,170 659 Tax 490 544 Other 595 432 Other fees paid to other accountancy firms: Internal audit 152 183 Other 555 391 Notes to the Preliminary Announcement For the year ended 31 December 2002 7 Taxation on profit on ordinary activities 2002 Restated 2001 Â£'000 Â£'000 The taxation charge on the profit for the year is made up as follows: United Kingdom corporation tax 1,654 3,010 Double tax relief - (349) Overseas taxation: Operating income 1,950 2,777 Exceptional item: GSR refinancing - 1,219 Deferred taxation 4,120 (504) Adjustment in respect of prior years: United Kingdom corporation tax (750) 292 Overseas taxation (37) - Deferred taxation 2,375 501 Share of joint ventures' taxation charge 7,327 6,066 16,639 13,012 The current tax recognised for the year is higher than the United Kingdom corporation tax rate of 30%. The main reasons for this are set out below: 2002 Restated 2001 Â£'000 Â£'000 Profit on ordinary activities before taxation multiplied by 14,682 12,012 the UK Corporation Tax rate of 30% Effect on the reported tax charge of: Expenses not deductible for tax purposes (primarily 3,463 4,450 goodwill amortisation) Tax allowances in excess of depreciation (1,828) (2,610) Other short term timing differences (1,953) (2,109) Unrelieved tax losses and higher tax rates on overseas 255 2,458 earnings Tax exempt income and the effect of the use of unrecognised (634) (519) tax losses Tax incentives including Tonnage Tax and Research & (3,054) (959) Development Tax Credits Current tax charge for the year 10,931 12,723 Deferred tax 6,495 (3) Adjustment in respect of prior years (787) 292 Taxation on profit on ordinary activities 16,639 13,012 Notes to the Preliminary Announcement For the year ended 31 December 2002 8 Dividends 2002 2001 Â£'000 Â£'000 Interim dividend of 0.64p per share on 429,260,960 Ordinary Shares (2001 - 0.57p on 392,551,903 Ordinary Shares) of 2p each fully paid - paid 11 October 2002 2,747 2,238 Proposed final dividend of 1.44p per share on 429,448,207 Ordinary Shares (2001 - 1.29p on 389,613,782 Ordinary Shares) of 2p each fully paid - proposed payment on 13 May 2003 6,184 5,026 8,931 7,264 2001 final dividend of 1.29p on 39,547,465 shares issued between 31 December 2001 and 13 March 2002 (record date) 510 - 2000 final dividend of 1.13p on 50,212 shares relating to shares issued between 31 December 2000 and 6 April 2001 (record date) - 1 9,441 7,265 A dividend waiver is effective for those shares held on behalf of the Company by its Employee Share Ownership Trust. 9 Earnings per Ordinary Share Basic and diluted earnings per Ordinary Share after goodwill have been calculated in accordance with Financial Reporting Standard 14 - Earnings Per Share. Earnings per share is shown both before and after goodwill to assist in the understanding of the impact of FRS 10 on the preliminary announcement. The calculation of basic earnings per Ordinary Share after goodwill is based on profits of Â£32,302,000 for the year ended 31 December 2002 (2001 restated - Â£ 27,027,000) and the weighted average number of 421,813,107 (2001 - 389,552,980) Ordinary Shares of 2p each in issue during the year. The calculation of basic earnings per Ordinary Share before goodwill is based on profits of Â£40,400,000 (adjusted for the effect of goodwill amortisation of Â£8,098,000) for the year ended 31 December 2002 (2001 restated - Â£32,150,000 adjusted for the effect of goodwill amortisation of Â£5,123,000) and the weighted average number of 421,813,107 (2001 - 389,552,980) Ordinary Shares of 2p each in issue during the year. The calculation of diluted earnings per Ordinary Share after goodwill is based on profits of Â£32,302,000 for the year ended 31 December 2002 (2001 restated - Â£27,027,000) and the weighted average number of 423,288,423 (2001 - 391,115,673) Ordinary Shares of 2p each assuming that the options are all exercised. The calculation of diluted earnings per Ordinary Share before goodwill is based on profits of Â£40,400,000 (adjusted for the effect of goodwill amortisation of Â£8,098,000) for the year ended 31 December 2002 (2001 restated - Â£32,150,000 adjusted for the effect of goodwill amortisation of Â£5,123,000) and the weighted average number of 423,288,423 (2001 - 391,115,673) Ordinary Shares of 2p each assuming that the options are all exercised. Notes to the Preliminary Announcement For the year ended 31 December 2002 10 Intangible assets Goodwill Other Group Total Â£'000 Â£'000 Â£'000 Cost: At 1 January 2002 152,889 - 152,889 Additions during the year 13,029 1,775 14,804 Adjustments to goodwill capitalised on (403) - (403) acquisitions prior to 1 January 2002 At 31 December 2002 165,515 1,775 167,290 Accumulated amortisation: At 1 January 2002 11,719 - 11,719 Charge for the year 7,777 321 8,098 At 31 December 2002 19,496 321 19,817 Net book value: At 31 December 2002 146,019 1,454 147,473 At 31 December 2001 141,170 - 141,170 Other intangible assets comprise a Â£1,775,000 premium for the acquisition of two, five-year, licences and are amortised over the licence life. 11 Tangible assets Group Freehold Short Machinery, leasehold motor vehicles, land and building furniture and buildings improvements equipment Total Â£'000 Â£'000 Â£'000 Â£'000 Cost: At 1 January 2002 7,567 10,128 97,846 115,541 Subsidiaries acquired - - 838 838 Transfer from asset held 5,532 - - 5,532 for resale Capital expenditure 63 3,749 25,619 29,431 Disposals (5,535) (214) (5,799) (11,548) Foreign exchange 405 73 1,916 2,394 differences At 31 December 2002 8,032 13,736 120,420 142,188 Accumulated depreciation: At 1 January 2002 2,234 4,074 60,509 66,817 Subsidiaries acquired - - 483 483 Provided during the year 181 1,153 14,200 15,534 Disposals - (175) (4,458) (4,633) Foreign exchange 143 17 1,348 1,508 differences At 31 December 2002 2,558 5,069 72,082 79,709 Net book value: At 31 December 2002 5,474 8,667 48,338 62,479 At 31 December 2001 5,333 6,054 37,337 48,724 The cost of assets held by the Group under finance leases at 31 December 2002 was Â£24,977,000 (2001 - Â£18,905,000). The accumulated depreciation provided for those assets at 31 December 2002 was Â£9,168,000 (2001 - Â£6,903,000). Notes to the Preliminary Announcement For the year ended 31 December 2002 11 Tangible assets (continued) Company Short Machinery, leasehold motor vehicles, building furniture and improvements equipment Total Â£'000 Â£'000 Â£'000 Cost: At 1 January 2002 1,117 2,624 3,741 Transfers from subsidiary undertakings 1,161 2,329 3,490 Transfers to subsidiary undertakings (1,049) (1,897) (2,946) Capital expenditure 36 1,054 1,090 Disposals - (27) (27) At 31 December 2002 1,265 4,083 5,348 Accumulated depreciation: At 1 January 2002 355 1,704 2,059 Transfers from subsidiary undertakings 365 1,398 1,763 Transfers to subsidiary undertakings (323) (1,160) (1,483) Provided during the year 151 566 717 Disposals - (17) (17) At 31 December 2002 548 2,491 3,039 Net book value: At 31 December 2002 717 1,592 2,309 At 31 December 2001 762 920 1,682 The cost of assets held by the Company under finance leases at 31 December 2002 was Â£872,000 (2001 - Â£Nil). The accumulated depreciation provided for those assets at 31 December 2002 was Â£71,307 (2001 - Â£Nil). Notes to the Preliminary Announcement For the year ended 31 December 2002 12 Investments held as fixed assets Company Â£'000 a) Shares in subsidiary companies at cost: At 1 January 2002 35,598 Transfer of investments from Group companies 115,890 Transfer of investments to Group companies (29,437) Equity subscriptions for shares in Group companies 22,908 Redemption of Serco Australia Pty Ltd preference shares (3,541) At 31 December 2002 141,418 Group Â£'000 b) Group investments in joint ventures: At 1 January 2002 30,510 Dividends receivable (11,095) Acquisitions 370 Disposals (139) Foreign exchange translation difference (338) Share of profits after tax 16,575 At 31 December 2002 35,883 Group Â£'000 c) Investment in own shares: At 1 January 2002 18,983 Amortisation (776) At 31 December 2002 18,207 Investment in own shares represents 5,414,630 (2001 - 5,557,033) shares in Serco Group plc held by the Employee Share Ownership Trust ('the Trust') equal to 1.25% of current allotted share capital (2001 - 1.4%). The market value of shares held by the Trust at 31 December 2002 was Â£8,284,384 (2001 - Â£ 20,283,170). 142,403 shares were allotted during the year, all of which were at nil value (2001 - 52,308, of which 9,864 were allotted at Â£4.26 and 42,444 at nil value). d) Joint ventures: The Group's share of its joint ventures is summarised as follows: 2002 2001 AWE* PCG** Other Total Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover 91,386 52,504 84,780 228,670 227,510 Profit before Tax 7,801 4,993 11,108 23,902 18,708 Tax (1,832) (2,070) (3,425) (7,327) (6,066) Fixed assets - 2,288 31,278 33,566 54,147 Current assets 21,861 124,266 138,138 284,265 268,191 21,861 126,554 169,416 317,831 322,338 Liabilities due within one 17,660 17,518 27,313 62,491 62,817 year Liabilities due after more 1,066 94,446 123,945 219,457 229,011 than one year 18,726 111,964 151,258 281,948 291,828 Net assets 3,135 14,590 18,158 35,883 30,510 * Atomic Weapons Establishment Management Ltd ** Premier Custodial Group Ltd Adjustments have been made to joint venture results to ensure they are consistent with Group accounting policies. Notes to the Preliminary Announcement For the year ended 31 December 2002 12 Investments held as fixed assets (continued) e) A list of the principal undertakings of Serco Group plc is shown in Note 32. All the subsidiaries of the Group have been consolidated. f) At 31 December 2002, Group companies had branches in Abu Dhabi, Bahrain, Chile, Dubai, Korea, Ras Al Khaimah, Saudi Arabia, Sharjah and Switzerland. g) The subsidiaries of Serco Group plc and its joint venture undertakings are primarily engaged in the provision of services with the exception of Serco Investments Limited and certain other holding companies, which manage equity investments. h) Acquisitions: All acquisitions made during the year have been accounted for using the acquisition method of accounting. The goodwill arising on all acquisitions made in the year is being amortised over a period of 20 years. i) CCM Software Services Limited All the issued share capital of CCM Software Services Limited was acquired by Serco International Limited on 3 December 2002 for cash consideration of Â£ 8,647,000 and deferred cash consideration, contingent on achievement of certain financial targets post acquisition, valued at Â£2,068,000. Acquisition costs of Â£515,000 were incurred. The fair value of net assets acquired was Â£631,000 after taking account of adjustments of Â£448,000 required to recognise obligations for which no liability had been booked at the date of acquisition. The goodwill arising on consolidation is Â£10,599,000. ii) Other acquisitions The issued share capital of Euromedic Ltd and the assets and liabilities of SDC, a partnership, were acquired by Serco Holdings Ltd on 13 March 2002 and 31 May 2002 respectively for a total cash consideration of Â£2,088,000 and deferred cash consideration, contingent of achievement of certain financial targets post acquisition, valued at Â£223,000. Acquisition costs of Â£103,000 were incurred. The fair values of assets and liabilities acquired are considered to be the same as their book values. The total goodwill arising on consolidation is Â£ 2,430,000. 13 Stocks Group Group 2002 2001 Â£'000 Â£'000 Service spares 10,065 10,093 Long term contract balances 28,679 25,745 38,744 35,838 Notes to the Preliminary Announcement For the year ended 31 December 2002 14 Debtors Restated Group Group Company Company 2002 2001 2002 2001 Â£'000 Â£'000 Â£'000 Â£'000 a) Amounts due within one year: Amounts recoverable on contracts 168,820 150,342 - - Other debtors 18,425 21,224 21,089 14,747 Prepayments and accrued income 30,131 19,148 580 73 Amounts owed by joint ventures 2,666 4,257 - - Building held for re-sale - 4,734 - - 220,042 199,705 21,669 14,820 Restated Group Group Company Company 2002 2001 2002 2001 Â£'000 Â£'000 Â£'000 Â£'000 b) Amounts due after more than one year: Amounts recoverable on contracts 18,412 11,847 - - Other debtors 16,297 14,131 1,297 - Pensions prepayment (Note 31) 28,350 26,460 - - Amounts owed by joint ventures 12,033 9,567 - - PFI asset in the course of 33,840 14,100 - - construction* 108,932 76,105 1,297 - Total debtors 328,974 275,810 22,966 14,820 Included in amounts recoverable on contracts is Â£7,978,000 (2001 - Â£14,710,000) in respect of items procured on behalf of customers. This is offset by an amount of Â£8,792,000 (2001 - Â£12,038,000) in trade creditors and an amount of Â£ 945,000 (2001 - Â£1,611,000) in accruals. *PFI asset in the course of construction The impact on the preliminary announcement of the PFI asset in the course of construction in relation to the Traffic Control Centre contract is summarised as follows: Balance at Movement Balance at 1 January during the 31 December year 2002 2002 Â£'000 Â£'000 Â£'000 Balances in relation to asset in course of construction: PFI asset in the course of construction 13,733 18,355 32,088 excluding capitalised interest Interest included in PFI asset in the 367 1,385 1,752 course of construction Total PFI in asset in the course of 14,100 19,740 33,840 construction Cash - 270 270 Other debtors - 1,447 1,447 Accruals and deferred income - (4,852) (4,852) 14,100 16,605 30,705 Funded by: Non-recourse loan (14,100) (15,600) (29,700) Profits retained within Special Purpose - (1,005) (1,005) Company (14,100) (16,605) (30,705) Notes to the Preliminary Announcement For the year ended 31 December 2002 15 Other creditors including taxation and social security Group Group Company 2002 Company 2002 2001 2001 Â£'000 Â£'000 Â£'000 Â£'000 Obligations under finance 4,836 2,557 267 - leases Corporation tax 2,195 4,418 - - Other taxes and social 31,432 30,464 304 631 security costs Other creditors 38,034 47,689 117 446 Amounts owed to joint ventures 16,974 14,864 - - Other loans 372 629 - - 93,843 100,621 688 1,077 16 Creditors: Amounts falling due after more than one year Group Group Company Company 2002 2001 2002 2001 Â£'000 Â£'000 Â£'000 Â£'000 a) Bank loans and overdrafts 2,386 70,647 - 30,245 Obligations under finance 15,291 11,385 792 - leases Other loans 77,505 60,371 43,259 41,420 Total loans 95,182 142,403 44,051 71,665 Less: amounts included in 7,594 73,833 267 30,245 creditors falling due within one year Amounts falling due after more 87,588 68,570 43,784 41,420 than one year Group Group Company Company 2002 2001 2002 2001 Â£'000 Â£'000 Â£'000 Â£'000 b) Analysis of loan repayments due: Bank loans and overdrafts: Within one year or on demand 2,386 70,647 - 30,245 Obligations under finance leases: Within one year or on demand 4,836 2,557 267 - Between one and two years 4,667 2,543 525 - Between two and five years 4,291 3,826 - - After five years 1,497 2,459 - - Other loans: Within one year or on demand 372 629 - - Between one and two years 1,687 1,618 - - Between two and five years 70,735 14,681 43,259 - Non-recourse debt to fund 25,200 14,100 - - PFI asset Other 45,535 581 43,259 - After five years 4,711 43,443 - 41,420 Non-recourse debt to fund PFI 4,500 - - - asset Other 211 43,443 - 41,420 95,182 142,403 44,051 71,665 c) Finance lease obligations are secured by retention of title to the relevant assets. Notes to the Preliminary Announcement For the year ended 31 December 2002 17 Treasury policies and risk management The principal risks arising from the Group's financing activities are interest rate risk and foreign currency risk. Treasury operations are conducted within a framework of policies set and reviewed by the Board. There has been no material change during the year or since the year end to the major financial risks faced by the Group or the Group's approach to the management of these risks. As permitted by Financial Reporting Standard 13 - 'Derivatives and other Financial Instruments: Disclosures' short term debtors and non interest bearing short term creditors and loans from joint ventures have been excluded from the following disclosures other than the disclosure of the currency profile of financial assets and liabilities. The fundamental purpose of interest rate and foreign currency financial instruments entered into is to hedge monetary assets and liabilities, the details of which are set out below. Interest rate risk The Group borrows at both fixed and floating rates of interest. The Group's exposure to interest rate fluctuations on its long term borrowings is managed by using interest rate swaps and forward rate agreements. At 31 December 2002, after taking account of interest rate swaps, the proportion of the Group's fixed rate borrowings was 66.6% (2001 - 33.3%). Foreign currency risk The Group's policy is not to hedge the net assets of overseas subsidiaries as they represent a small proportion of the market value of the Group and because exchange rate fluctuations thereon are unlikely to have a material effect on the consolidated net asset value of the Group. Business units are required to hedge their material trading transactions (sales and purchases in currencies other than their functional currency) by using forward contracts. There were no material debtors or creditors as at 31 December 2002 with unhedged transactional exposure. Financial assets and liabilities i) Assets Sterling Euro Australian US Other Total Dollar currencies Dollar 31 December 2002 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cash and short 43,024 13,468 2,009 2,868 10,405 71,774 term deposits Long term 8,009 - 4,024 - - 12,033 interest-bearing loans to joint ventures Other long term 87,918 7,285 1,696 - - 96,899 debtors Total long term 95,927 7,285 5,720 - - 108,932 assets Australian US Other Sterling Euro Dollar Dollar currencies Total 31 December 2001 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cash and short 12,782 11,282 2,450 5,670 2,628 34,812 term deposits Long term 8,817 - 750 - - 9,567 interest- bearing loans to joint ventures Other long term 64,564 - 1,363 611 - 66,538 debtors Total long term 73,381 - 2,113 611 - 76,105 assets Included in the above is Â£4,095,000 (2001 - Â£4,117,000) of loans to joint ventures which carry a fixed interest rate of 13.0% for a weighted average period of 13 years (2001 - 14 years). All other interest bearing assets are held at floating rates of interest. Of total short term debtors 79% (2001 - 93%) is denominated in Sterling. Notes to the Preliminary Announcement For the year ended 31 December 2002 17 Treasury policies and risk management (continued) ii) Liabilities Fixed Rate Liabilities Weighted Weighted average Total Floating Fixed rate average time for which rate liabilities liabilities liabilities interest rate rate is fixed 31 December 2002 Â£'000 Â£'000 Â£'000 % Years Sterling 44,586 14,886 29,700 5.46 3 Australian 3,075 3,075 - - - Dollar US Dollar 46,885 13,182 33,703 7.33 5 Euro 636 636 - - - Total 95,182 31,779 63,403 - - Fixed Rate Liabilities Weighted Weighted average Total Floating Fixed rate average time for which rate liabilities liabilities liabilities interest rate rate is fixed 31 December 2001 Â£'000 Â£'000 Â£'000 % Years Sterling 98,077 83,977 14,100 5.46 3 Australian 2,451 2,451 - - - Dollar US Dollar 41,420 8,038 33,382 7.34 6 Euro 455 455 - - - Total 142,403 94,921 47,482 - - Of total short term creditors 80% (2001 - 81%) is denominated in sterling. The maturity of the Group's financial liabilities at 31 December 2002 and 31 December 2001: Maturing Maturing Maturing Maturing between one between two after more within one and two and five than five Total year years years years 31 December 2002 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Sterling 4,105 3,884 30,677 5,920 44,586 Australian Dollar 768 1,255 829 223 3,075 US Dollar 2,085 1,215 43,520 65 46,885 Euro 636 - - - 636 Total 7,594 6,354 75,026 6,208 95,182 Maturing Maturing Maturing Maturing between one between two after more within one and two and five than five Total year years years years 31 December 2001 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Sterling 72,677 3,216 17,777 4,407 98,077 Australian Dollar 701 945 730 75 2,451 US Dollar - - - 41,420 41,420 Euro 455 - - - 455 Total 73,833 4,161 18,507 45,902 142,403 Notes to the Preliminary Announcement For the year ended 31 December 2002 17 Treasury policies and risk management (continued) iii) Fair Values The book value and fair value of the Group's financial assets and liabilities at 31 December 2002 and 31 December 2001 were: 2002 2001 Book value Fair value Book value Fair value Â£'000 Â£'000 Â£'000 Â£'000 Assets Cash and short term deposits 71,774 71,774 34,812 34,812 Long term loans to joint 12,033 12,033 9,567 9,567 ventures Other long term debtors 96,899 96,899 66,538 66,538 Derivatives held to manage - 1,716 - 4,492 currency and interest rate risk Total 108,932 110,648 76,105 80,597 Liabilities Long term borrowing: Sterling 40,481 40,481 25,400 25,400 Australian Dollar 2,307 2,307 1,750 1,750 US Dollar 44,800 49,091 41,420 48,991 Total 87,588 91,879 68,570 76,141 Short term borrowing: Sterling 4,105 4,105 72,677 72,677 Australian Dollar 768 768 701 701 US Dollar 2,085 2,085 - - Euro 636 636 455 455 Total 7,594 7,594 73,833 73,833 Foreign currency assets which are hedged using forward foreign exchange contracts are translated at the contracted rates. The fair value of other foreign currency contracts, interest rate swaps, and the US$70,000,000 loan notes, have been determined by reference to prices available from the markets on which the instruments involved are traded. Gains and losses on hedges Changes in the fair value of financial instruments used as hedges are not recognised until the hedged position matures. There was an unrecognised gain of Â£1,716,000 (2001 - gain of Â£4,492,000) on hedges as at 31 December 2002. The unrecognised gain is not expected to be recognised in the Profit and Loss account in the next period. Borrowing facilities The Group had committed bank credit facilities of Â£50,000,000 at 31 December 2002. The Group also had annually renewable uncommitted bank facilities totalling Â£111,000,000, all of which were undrawn at 31 December 2002. Notes to the Preliminary Announcement For the year ended 31 December 2002 18 Provisions for liabilities and charges Restated Balance Charged to Foreign Balance 1 January the profit exchange 31 December and 2002 Utilised loss account differences 2002 Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Pensions 23,003 (463) 1,663 1,605 25,808 provision Deferred 2,246 - 6,495 (16) 8,725 taxation 25,249 (463) 8,158 1,589 34,533 Balance Charged to Foreign Balance 1 January the profit exchange 31 December and 2002 Utilised loss account differences 2002 Company Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Deferred tax - - 335 - 335 19 Deferred taxation Group Restated Company Company Group 2002 2001 2002 2001 Â£'000 Â£'000 Â£'000 Â£'000 The amounts of deferred taxation provided in the accounts are: Tax allowances in excess of 2,650 332 (77) - depreciation Overseas timing differences 1,967 692 - - Other timing differences 4,108 1,222 412 - 8,725 2,246 335 - Potential amounts of deferred taxation for which no credit has been taken: Overseas timing differences (2,767) (3,224) - - (2,767) (3,224) - - 20 Reconciliation of movements in shareholders' funds Restated 2002 2001 Â£'000 Â£'000 Profit on ordinary activities after taxation 32,302 27,027 Dividends (9,441) (7,265) 22,861 19,762 Currency translation differences on foreign currency net (1,911) (1,917) investments New capital subscribed 117,929 3,561 Exercise of share scheme options (93) (1,260) Net increase in shareholders' funds 138,786 20,146 Opening shareholders' funds as previously stated 129,877 108,925 Prior year adjustment (806) - Opening shareholders' funds as restated 129,071 108,925 Closing shareholders' funds as restated 267,857 129,071 Notes to the Preliminary Announcement For the year ended 31 December 2002 21 Called up share capital 2002 2001 Â£'000 Â£'000 a) Authorised 550,000,000 (2001 - 550,000,000) Ordinary 11,000 11,000 Shares of 2p each 2002 2001 Â£'000 Â£'000 b) Called up, allotted and fully paid: 434,862,837 (2001 - 395,170,815) Ordinary Shares of 2p each 8,697 7,903 c) Ordinary Shares of 2p each allotted in the year: During the year 289,581 Ordinary Shares of 2p each were allotted to the holders of options or their personal representatives. Of these, 147,178 were allotted using newly issued shares, 2,628 were allotted at Â£2.0208*, 104,796 at Â£2.175, 38,706 at Â£2.45*, and 1,048 at Â£3.81. The remaining 142,403 were allotted at nil value using shares purchased in the market and held in trust. In addition to the above, 39,500,000 Ordinary Shares of 2p each were allotted under a share placement on 12 March 2002 at Â£3.05. 44,844 Ordinary Shares of 2p each were also allotted on 19 December 2002 as deferred consideration relating to the acquisition of Serco QAA (formerly Quality Assurance Associates Limited) made in December 2000. *Restated to reflect the capitalisation issue on 5 April 2000. d) Options in respect of Ordinary Shares of 2p each: i. In January 1996, 1,210,392 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `Serco Group plc 1996 Long Term Incentive Scheme'. At 31 December 2002 no options remain. ii. In January 1997, 1,439,622 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `Serco Group plc 1996 Long Term Incentive Scheme'. At 31 December 2002 there remained 54,000 options which are exercisable at nil value in accordance with the rules of the Scheme. iii. 3,341,346 options in respect of Ordinary Shares of 2p each were granted in May and September 1998 in accordance with the rules of the `Serco Group plc 1998 Executive Option Plan'. At 31 December 2002 there remained 1,606,259 options which are exercisable at a price of Â£2.175 each and 10,830 at Â£ 2.0208* each in accordance with the rules of the Scheme. iv. On 1 April 1999, 3,461,664 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `Serco Group plc 1998 Executive Option Plan'. At 31 December 2002 there remained 2,385,474 options which are exercisable at a price of Â£2.45 each in accordance with the rules of the Scheme. v. On 31 March 2000, 4,511,988 options in respect of Ordinary Shares of 2p each were granted as part of the 1996 Sharesave Scheme. 2,577,092 options were held by employees on 31 December 2002. The options are exercisable at any time between 1 May 2003 and 31 October 2003 at a price of Â£3.81 each in accordance with the rules of the Scheme. vi. On 5 April 2000, 2,524,836 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `Serco Group plc 1998 Executive Option Plan'. At 31 December 2002 there remained 2,368,224 options which are exercisable at a price of Â£4.2542* each in accordance with the rules of the Scheme. vii. On 5 April 2000, 219,900 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `1996 Serco Group plc Long Term Incentive Scheme as amended by the Company on 5 April 2000'. At 31 December 2002 there remained 148,236 options which are exercisable at a nil value in accordance with the rules of the Scheme. Notes to the Preliminary Announcement For the year ended 31 December 2002 21 Called up share capital (continued) viii. 37,677 options in respect of Ordinary Shares of 2p each were granted in August and November 2000, in accordance with the rules of the `Serco Group plc 1998 Executive Option Plan'. As at 31 December 2002 there remained 26,268 options which are exercisable at a price of Â£5.825 and 8,878 options which are exercisable at a price of Â£4.90 each in accordance with the rules of the scheme. ix. On 24 November 2000, 259,351 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `1996 Serco Group plc Long Term Incentive Scheme as amended by the Company on 5 April 2000'. At 31 December 2002 there remained 188,169 options which are exercisable at nil value in accordance with the rules of the Scheme. x. On 20 March 2001, 2,851,962 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `Serco Group plc 1998 Executive Option Plan'. As at 31 December 2002 there remained 2,700,200 options which are exercisable at a price of Â£4.07 each in accordance with the rules of the Scheme. xi. On 27 March 2001, 603,144 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `Serco Group plc 1998 Executive Option Plan'. As at 31 December 2002 there remained 600,838 options which are exercisable at a price of Â£4.35 each in accordance with the rules of the Scheme. xii. On 16 November 2001, 248,374 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `1996 Serco Group plc Long Term Incentive Scheme as amended by the Company on 5 April 2000'. At 31 December 2002 there remained 200,202 options which are exercisable at nil value in accordance with the rules of the Scheme. xiii. On 3 May 2002, 5,986,743 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `Serco Group plc 1998 Executive Option Plan'. As at 31 December 2002 there remained 5,914,886 options which are exercisable at a price of Â£2.64 each in accordance with the rules of the Scheme. xiv. On 3 May 2002, 55,600 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `1996 Serco Group plc Long Term Incentive Scheme as amended by the Company on 5 April 2000'. At 31 December 2002 no options had been exercised or lapsed. These options have been granted in respect of a three-year performance period starting 1 January 2002 and are exercisable at a nil value in accordance with the rules of the Scheme. xv. On 6 September 2002, 5,428,691 options in respect of Ordinary Shares of 2p each were granted in accordance with the rules of the `Serco Group plc 1998 Executive Option Plan'. As at 31 December 2002 there remained 5,327,309 options which are exercisable at a price of Â£1.645 each in accordance with the rules of the Scheme. *Restated to reflect the capitalisation issue on 5 April 2000. e) The market price of Serco Group plc Ordinary Shares of 2p each as at 31 December 2002 was Â£1.53. The market price of these shares ranged from Â£4.00 to Â£1.325 during the year. Notes to the Preliminary Announcement For the year ended 31 December 2002 22 Share premium account Group and Company Â£'000 Balance at 1 January 2002 73,656 Deferred consideration relating to the acquisition of Serco QAA 69 Limited Share premium on issue of shares upon exercise of options 422 Share placement (Net of Â£3,041,000 expenses) 116,644 Balance at 31 December 2002 190,791 23 Profit and loss account Â£'000 Group At 31 December as previously stated 48,175 Prior year adjustment (806) Balance at 1 January 2002 as restated 47,369 Retained profit transferred to reserves 22,861 Currency translation differences on foreign currency net investments (1,911) Exercise of share option schemes (93) Balance at 31 December 2002 68,226 The Profit and Loss Account includes a goodwill charge of Â£41,578,000 under the accounting policy applicable prior to the implementation of FRS 10. Company As permitted by Section 230 of the Companies Act 1985, the Profit and Loss Account of the Parent Company is not presented as part of this preliminary announcement. The consolidated profit for the financial year includes the Parent Company profit of Â£14,219,000, which includes dividends of Â£24,874,000 received from subsidiary companies. A final ordinary dividend of Â£6,184,000 is proposed, which together with the interim dividend of Â£2,747,000 and the payment in relation to the 2001 final dividend caused by the movement in the number of shares in issue of Â£510,000, leaves a profit of Â£4,778,000 which has been added to reserves brought forward of Â£34,958,000. This, along with a foreign exchange charge of Â£1,947,000, results in reserves carried forward of Â£37,789,000. Notes to the Preliminary Announcement For the year ended 31 December 2002 24 Reconciliation of operating profit to net cash inflow from operating activities 2002 Restated 2001 Â£'000 Â£'000 Operating profit before cost of unsuccessful NATS 29,103 21,254 acquisition Exceptional item: Cost of unsuccessful NATS acquisition - (10,187) Operating profit 29,103 11,067 Depreciation 15,534 13,160 Amortisation of goodwill and intangible fixed assets 8,098 5,123 Profit on sale of tangible fixed assets (1,948) (1,236) Increase in stocks (2,906) (8,932) Increase in debtors (41,870) (56,223) Increase in creditors 30,795 53,578 Increase/(decrease) in provisions 2,805 (1,053) One off pension fund contribution (15,500) - Net cash inflow from operating activities before PFI asset 24,111 15,484 expenditure Expenditure on PFI asset in the course of construction (14,950) (13,733) Net cash inflow from operating activities after PFI asset 9,161 1,751 expenditure 25 Analysis of net debt Balance Other Balance 31 1 January Cash non-cash December 2002 flow changes 2002 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 34,812 36,962 - 71,774 Overdrafts (70,647) 68,261 - (2,386) Cash net of overdrafts (35,835) 105,223 - 69,388 Non-recourse debt to fund PFI asset (14,100) (15,600) - (29,700) Other loans due after more than one (45,642) (24) (1,767) (47,433) year Other loans due within one year (629) 300 (43) (372) Finance leases (11,385) 3,594 (7,500) (15,291) Net debt (107,591) 93,493 (9,310) (23,408) 26 Reconciliation of increase/(decrease) in cash to movement in net debt 2002 2001 Â£'000 Â£'000 Increase/(decrease) in cash 105,223 (81,332) Cash inflow from non-recourse debt financing PFI asset (15,600) (14,100) Cash outflow from debt and lease financing 3,870 1,935 Change in net debt resulting from cash flows 93,493 (93,497) Non cash changes from other debt and lease financing (9,310) (10,089) Movement in net debt in the year 84,183 (103,586) Net debt at 1 January (107,591) (4,005) Net debt at 31 December (23,408) (107,591) Notes to the Preliminary Announcement For the year ended 31 December 2002 27 Major non cash transactions During the year the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the leases of Â£7,610,000 (2001 - Â£10,089,000). During the year Â£93,000 (2001 - Â£1,260,000) has been charged to the profit and loss reserve in respect of shares issued under employee share incentive schemes. Other non-cash movements with respect to other loans relate to foreign exchange. 28 Contingent liabilities The Group has given indemnities in respect of overseas credit facilities and lease payments amounting to Â£7,426,000 (2001 - Â£7,590,000). In addition to this, the Group has given indemnities in respect of performance guarantees, letters of credit and import duty guarantees issued on its behalf in the ordinary course of business, which are not expected to result in any material financial loss. 29 Capital and other commitments Group Group Company Company 2002 2001 2002 2001 Â£'000 Â£'000 Â£'000 Â£'000 Capital expenditure contracted but not 8,595 1,244 - - provided There is a commitment of Â£30 million in relation to the Traffic Control Centre PFI asset under construction, which will be funded by non-recourse bank debt. During the year ending 31 December 2003 the Group is to make the following payments in respect of operating leases: Land and buildings Other Â£'000 Â£'000 Leases which expire: Within one year 1,965 4,199 Between one and five years 7,015 16,690 After five years 4,464 4,264 13,444 25,153 Notes to the Preliminary Announcement For the year ended 31 December 2002 30 Related parties Directors The Directors of Serco Group plc had no material transactions with the Group during the year other than service contracts and Directors' liability insurance. Joint ventures The following material transactions took place between the Group and its joint ventures during 2002: 2002 2001 Â£'000 Â£'000 Net loans during the year 1,797 2,131 Net trading 1,800 2,671 Royalties and management fees receivable 2,302 2,448 Dividends receivable 11,095 9,645 16,994 16,895 The following receivable balances relating to joint ventures were included in the Group Balance Sheet: 2002 2001 Â£'000 Â£'000 Amounts due within one year: Loans 2,140 - Trading balance 287 342 Royalties and management fees 239 3,915 2,666 4,257 Amounts due after more than one year: Loans 12,033 9,567 12,033 9,567 The following payable balances relating to joint ventures were included in the Group Balance Sheet: 2002 2001 Â£'000 Â£'000 Amounts payable within one year: Loans 16,974 14,165 Trading balance - 699 16,974 14,864 Details of Group investments in joint ventures and other principal undertakings are given in Note 32. Notes to the Preliminary Announcement For the year ended 31 December 2002 31 Pension schemes The Group has continued to account for pensions in accordance with SSAP 24. Full adoption of the requirements of FRS 17 `Retirement Benefits' will not be mandatory for the Group until the year ended 31 December 2005. The transitional disclosures required by FRS 17 are set out in Part (B) of this note which shows the Group's pension deficit in accordance with FRS 17 at 31 December 2002 was Â£ 73.6 million (2001 - Â£3.6 million) on an asset base of Â£294.4 million (2001 - Â£ 298.4 million). (A) SSAP 24 Disclosure The net pension charge in accordance with SSAP 24 for the year ended 31 December 2002 was Â£29,096,000 (2001 - Â£19,544,000). The Group operates or is a member of a number of pension schemes as follows: a) Serco Pension and Life Assurance Scheme ('SPLAS') This is a pre-funded defined benefit scheme. The funding policy is to contribute such variable amounts, on the advice of the actuary, as will achieve 100% funding on a projected salary basis. The latest formal valuation of the scheme was carried out as at 6 April 1999. The figures included in the accounts are based on a formal valuation, which is currently being carried out as at 6 April 2002. During 2002 there has been a fall in general stock market values and a bulk transfer was received from the AEA Technology Pension Scheme. The figures in the Profit and Loss Account and the Balance Sheet prepayment have been determined in accordance with the requirements of SSAP 24. The average contribution rate is currently 18% for the scheme. The projected unit method was adopted for the actuarial valuation of the Scheme for accounting purposes. The main actuarial assumptions used to value liabilities are: Investment yield 7.0% p.a. (5.5% post retirement) Salary growth 3.75% p.a. Price inflation 2.5% p.a. Pension increases 2.5% p.a. The Scheme is assessed to be fully funded on a current funding level basis based on a market value of assets of Â£145,881,000 at 6 April 1999. Liabilities for this purpose are calculated using the basis for determining individual cash equivalents for active members and deferred pensioners and by estimating the cost of purchasing annuity policies for pensioners. The actuarial value of the assets represented 81% of the ongoing liabilities of the Scheme. Variations from the normal costs are amortised for accounting purposes over a fifteen year period as a constant monetary amount. Employer pension contributions paid into the Scheme during the year were Â£ 12,300,000 (2001 - Â£9,760,000), of which Â£500,000 related to special contributions in respect of a discretionary increase to pensions in payment awarded during the year (2001 - Â£652,000) and Â£600,000 of contributions in respect of augmentations (2001 - Â£810,000). A Â£15,000,000 contribution which was included in accruals and prepayments at 31 December 2001 was paid in February 2002. At 31 December 2002 a prepayment of Â£17,450,000 (2001 - Â£17,360,000) in respect of the Scheme was included in the Balance Sheet. Â£12,210,000 was charged to the Profit and Loss Account in respect of the Scheme (2001 - Â£8,950,000). b) The Serco-IAL Pension Scheme This is a pre-funded defined benefit scheme. The funding policy is to contribute such variable amounts, on the advice of the actuary, as will achieve 100% funding on a projected salary basis. Notes to the Preliminary Announcement For the year ended 31 December 2002 31 Pension schemes (continued) Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, with the last such review being carried out as at 31 March 2001. On the assumptions adopted for accounting purposes and based on a market value of assets of Â£104,037,000 at 31 March 2001, the actuarial value of the assets represented 110% of the ongoing past service liabilities of the Scheme as at that date. The current contribution rate is 17.8% for the Scheme. For accounting purposes, the projected unit method has been adopted and the main actuarial assumptions used to value liabilities are: Investment return 6.0% p.a. Salary growth (excluding salary scale) 4.5% p.a. Pension increases 2.5% p.a. The past service surplus in excess of the prepayment as at 31 March 2001 is being amortised for accounting purposes over a nine year period at a constant monetary amount. Employer pension contributions paid into the Scheme during the year were Â£ 2,125,000 (2001 - Â£1,738,000). An amount of Â£325,000 (2001 - Â£300,000) has been charged to the 2002 Profit and Loss Account in respect of the Scheme and a prepayment of Â£10,900,000 (2001 - Â£ 9,100,000) has been included in the Balance Sheet as at 31 December 2002. c) Serco GmbH & Co.KG Pension arrangement The German pension arrangement comprises two elements; an unfunded defined benefit arrangement and an unfunded hybrid scheme. Actuarial assessments covering liabilities are carried out by independent qualified actuaries, with the last such review being carried out as at 23 December 1999 and updated as at 31 December 2002 by a qualified independent actuary. The projected unit method was adopted for the actuarial valuation of the arrangement. The main actuarial assumptions used in the valuation for accounting purposes were: Discount rate 6.0% p.a. Salary growth 3.0% p.a. Price inflation 1.0% p.a. The Profit and Loss charge for the year was Â£1,663,000 (2001 - Â£130,000) and a provision of Â£25,808,000 (2001 - Â£23,003,000) has been included in the Balance Sheet as at 31 December 2002 of which Â£20,271,000 (2001 - Â£17,466,000) relates to the hybrid element of the Scheme and Â£5,537,000 to the defined benefit element of the Scheme. d) Serco Superannuation Fund The defined benefit element of the Scheme was established in Australia on 1 April 1993 to provide equivalent benefits for members transferring from the AWA Defence Industries Superannuation Fund, a defined benefit scheme. Notes to the Preliminary Announcement For the year ended 31 December 2002 31 Pension schemes (continued) Actuarial assessments covering expenses and contributions relating to the defined benefit element of the Scheme are carried out by independent qualified actuaries, with the last such valuation being carried out as at 31 December 2000. The attained age method was used for the actuarial valuation of the Scheme as at 31 December 2000. This method was chosen to produce a level employer contribution rate as a proportion of members' salaries over the expected future working lives of the existing members, as the defined benefit element of the Scheme was closed to new members with effect from 1 April 1993. The main actuarial assumptions used in the actuarial valuation for accounting purposes were: Average long-term interest rate (net of investments and administration expenses and investment tax) 8.0% p.a. Average long term allowance for salaries increases 5.5% p.a. The defined benefit element of the Scheme was assessed to be fully funded on a current funding level based on a market value of assets of Â£1,385,000 (A$3,938,000) at 31 December 2000 with a ratio of market value of assets to current funding level liabilities of 107%. The actuarial value of assets of the defined benefit element of the Scheme represented 115% of its ongoing liabilities at 31 December 2000. The pension cost calculated under the attained age method will amortise the above surplus over the expected future working lives of the existing members which have an average value of 11 years. Employer pension contributions paid into the Scheme and charged to the 2002 Profit and Loss Account relating to the defined benefit element of the scheme were Â£257,000 (2001 - Â£104,000). e) The NPL Management Limited Pension Scheme This is a pre-funded defined benefit scheme. The Company accounts for this scheme as a defined contribution scheme since at re-bid any surplus or deficit would transfer to the next contractor. Cash contributions are recognised as pension costs and no asset or liability is shown on the Balance Sheet. Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, with the last such review being carried out as at 5 April 2001. The funding policy is to contribute such variable amounts as will achieve 100% funding on a projected unit basis. The average contribution rate is currently 20.8% for the scheme. The main actuarial assumptions proposed in the valuation were: Investment return 6.50% p.a. (5.0% for current pensioners) Salary growth 4.25% p.a. (plus promotional scale) Price inflation 2.25% p.a. Pension increases 2.25% p.a. The market value of assets represented 93% of the ongoing liabilities of the Scheme. Employer pension contributions charged to the 2002 Profit and Loss Account were Â£1,903,000 (2001 - Â£1,634,000). Notes to the Preliminary Announcement For the year ended 31 December 2002 31 Pension schemes (continued) f) The Serco Shared Cost Section of the Railways Pension Scheme This is a pre-funded defined benefit scheme. The Company accounts for this scheme as a defined contribution scheme since at re-bid any surplus or deficit would transfer to the next contractor. Cash contributions are recognised as pension costs and no asset or liability is shown on the Balance Sheet. Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, the last such review being carried out as at 31 December 2001. The funding policy is to contribute such variable amounts as will achieve 100% funding on a projected unit basis. The main actuarial assumptions used in the valuation were: Investment return 6.3% p.a. Salary growth 4.0% p.a. (plus promotional scale) Price Inflation 2.5% p.a. Pension increases 2.5% p.a. The actuarial value of assets represented 117% of the ongoing liabilities of the Scheme. The current contribution rate is 7.5% of Section Pay. Employer pension contributions charged to the 2002 Profit and Loss Account during the year were Â£715,000 (2001 - Â£634,000). g) Serco Metrolink Pension Scheme This is a pre-funded defined benefit scheme. The Company accounts for this scheme as a defined contribution scheme as at re-bid any surplus or deficit would transfer to the next contractor. Cash contributions are recognised as pension costs and no asset or liability is shown on the Balance Sheet. Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, the last such review being carried out as at 31 August 2001. The funding policy is to contribute such variable amounts as will achieve 100% funding on a projected unit basis. The main actuarial assumptions used in the valuation were: Investment return 6.5% p.a. Salary growth 4.4% p.a. Price Inflation 2.4% p.a. Pension increases 2.4% p.a. The actuarial value of assets represented 82% of the ongoing liabilities of the scheme. The current contribution rate is 8.2%. Employer pension contributions charged to the 2002 Profit and Loss Account were Â£244,000 (2001 - Â£225,000). h) Docklands Light Railway Pension Scheme This is a pre-funded defined benefit scheme with Docklands Light Railway Limited being the principal employer. Serco accounts for this scheme as a defined contribution scheme, since at re-bid any surplus or deficit would transfer to the next contractor. Cash contributions are recognised as pension costs and no asset or liability is shown on the Balance Sheet. Notes to the Preliminary Announcement For the year ended 31 December 2002 31 Pension schemes (continued) Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, with the last such review being carried out at 1 April 2001. The funding policy is to contribute such variable amounts as will achieve 100% funding on a projected unit basis. The main actuarial assumptions used in the valuation this year were: Investment return 7.0% p.a. Salary growth 5.0% p.a. (including promotional scale) Pension increases 3.0% p.a. Dividend yield 2.75% p.a. The actuarial value of assets represented 96% of the ongoing liabilities of the Scheme. The current contribution rate is 15.2%. Employer pension contributions charged to the 2002 Profit and Loss Account were Â£1,378,000 (2001 - Â£1,181,000). i) Other defined contribution schemes The Group paid employer contributions of Â£10,401,000 (2001 - Â£6,386,000) into UK and Australian defined contribution schemes and foreign state pension schemes. (B) FRS 17 Disclosure The disclosures required under the transitional arrangements within FRS 17 have been based on the most recent full actuarial valuations of the Serco Pension and Life Assurance Scheme as at 6 April 1999 and the Serco-IAL Scheme as at 31 March 2001, updated to 31 December 2002 by independent qualified actuaries. If the amounts had been recognised in the preliminary announcement the net assets and the Profit and Loss Account would be as follows: Restated 2002 2001 Â£'000 Â£'000 Net assets excluding net, SSAP 24, pension assets 248,012 110,549 Net pension liability under FRS 17 (73,602) (3,614) Net assets including pension liabilities under FRS 17 174,410 106,935 2002 Restated 2001 Â£'000 Â£'000 Profit and loss reserve 68,226 47,369 Reversal of SSAP24 prepayments, net of deferred taxation (19,845) (18,522) 48,381 28,847 (Deficit) in relation to SPLAS scheme, net of deferred (62,427) (5,740) taxation (Deficit) / surplus in relation to Serco-IAL scheme, net (11,174) 2,126 of deferred taxation Total pension deficit (73,601) (3,614) Profit and loss reserve adjusted (25,220) 25,233 Notes to the Preliminary Announcement For the year ended 31 December 2002 31 Pension schemes (continued) a) Serco Pension and Life Assurance Scheme ('SPLAS') The financial assumptions used were: 2002 2001 % p.a. % p.a. Rate of increase in salaries 3.85 4.00 Rate of increase in deferred pensions 2.25 2.25 Rate of increase in pensions in payment 2.25 2.25 Discount rate 5.47 5.83 Inflation assumption 2.35 2.50 The Scheme's assets and the expected rates of return as at 31 December 2002 were: 2002 2002 2001 2001 % p.a. Â£'000 % p.a. Â£'000 Equities 7.00 134,319 7.25 119,600 AA corporate bonds 5.47 17,252 5.83 15,500 Gilts 4.50 28,264 5.00 21,000 Cash and other 4.00 - 4.00 15,800 Total market value of assets 179,835 171,900 Present value of scheme liabilities (269,017) (180,100) Deficit in the Scheme (89,182) (8,200) Related deferred tax asset 26,755 2,460 Net pension liability (62,427) (5,740) The amount chargeable under FRS17 to operating profit for the year ended 31 December 2002 would have been: Â£'000 Service cost 11,391 Past service cost 1,100 Total operating charge 12,491 Analysis of the net return on the pension scheme for the year ended 31 December 2002: Â£'000 Expected return on pension scheme assets 12,872 Interest on pension liabilities (12,664) Net return 208 Analysis of amount recognisable in Statement of Total Recognised Gains and Losses (STRGL) for the year ended 31 December 2002: Â£'000 Actual return less expected return on assets (56,996) Experience gains and losses on liabilities (20,013) Changes in assumptions (3,990) Actuarial loss recognised in STRGL (80,999) Notes to the Preliminary Announcement For the year ended 31 December 2002 31 Pension schemes (continued) Movement in deficit during the year: Â£'000 Deficit in scheme at 31 December 2001 (8,200) Movement in year: Current service cost (11,391) Contributions 12,300 Past service costs (1,100) Net return on assets 208 Actuarial loss (80,999) Deficit in scheme at 31 December 2002 (89,182) History of experience gains and losses: 2002 Â£'000 Difference between expected and actual return on scheme assets (56,996) Percentage of scheme assets 31.7% Experience gains and losses on scheme liabilities (20,013) Percentage of scheme liabilities 7.4% Total amount recognised in STRGL (80,999) Percentage of scheme liabilities 30.1% b. The Serco-IAL Pension Scheme The financial assumptions used were: 2002 2001 % p.a. % p.a. Rate of increase in salaries 3.85 4.00 Rate of increase in pensions - RPI 2.35 2.50 - LPI 2.25 2.25 - discretionary 2.25 2.25 Discount rate 5.47 5.83 Inflation assumption 2.35 2.50 The Scheme's assets and the expected rates of return as at 31 December 2002 were: 2002 2002 2001 2001 % p.a. Â£'000 % p.a. Â£'000 Equities 7.00 49,483 7.25 59,694 UK bonds 4.82 28,758 5.18 31,336 Property 6.24 7,690 6.54 7,329 Cash and other assets 4.50 908 4.00 78 Annuity policies 5.47 27,798 5.83 28,100 Total market value of assets 114,637 126,537 Present value of scheme liabilities (130,600) (123,500) (Deficit) / surplus in the Scheme (15,963) 3,037 Related deferred tax asset / 4,789 (911) (liability) Net pension (liability) / asset (11,174) 2,126 Notes to the Preliminary Announcement For the year ended 31 December 2002 31 Pension schemes (continued) The amount chargeable under FRS17 to operating profit for the year ended 31 December 2002 would have been: Â£'000 Service cost 2,300 Past service cost - Total operating charge 2,300 Analysis of the net return on the pension scheme for the year ended 31 December 2002: Â£'000 Expected return on pension scheme assets 7,900 Interest on pension liabilities (7,000) Net return 900 Analysis of amount recognisable in Statement of Total Recognised Gains and Losses (STRGL) for the year ended 31 December 2002: Â£'000 Actual return less expected return on assets (16,100) Experience gains and losses on liabilities 700 Changes in assumptions (4,300) Actuarial loss recognised in STRGL (19,700) Movement in surplus during the year: Â£'000 Surplus in scheme at 31 December 2001 3,037 Movement in year: Current service cost (2,300) Contributions 2,100 Past service costs - Net return on assets 900 Actuarial loss (19,700) Deficit in scheme at 31 December 2002 (15,963) History of experience gains and losses: 2002 Â£'000 Difference between expected and actual return on scheme assets (16,100) Percentage of scheme assets 14.0% Experience gains and losses on scheme liabilities 700 Percentage of scheme liabilities 0.5% Total amount recognised in STRGL (19,700) Percentage of scheme liabilities 15.1% c. The Balance Sheet position for all of the other Group Pension Schemes is materially the same in accordance with FRS17 as for SSAP 24. Notes to the Preliminary Announcement For the year ended 31 December 2002 32 List of principal undertakings The companies listed below are, in the opinion of the Directors, the principal undertakings of Serco Group plc. The percentage of equity capital directly or indirectly held by Serco Group plc is shown. The voting rights are the same as the percentage holding. The companies are incorporated and principally operate in the countries stated below. Principal subsidiaries United Kingdom Serco Limited 100% Serco-Denholm Limited 90% Serco Europe Limited 100% Serco-IAL Limited 100% Serco Railtest Limited 100% Serco Systems Limited 100% NPL Management Limited 100% Serco Docklands Limited 100% Rakmulti Technology Limited 100% Serco QAA Limited 100% Traffic Information Services (TIS) Limited 100% Rest of Europe Belgium Serco Belgium S.A. 100% Denmark Metro Service A/S 67% France Serco France Sarl 100% Germany Serco International GmbH 100% Serco Services GmbH 100% Ireland Serco Services Ireland Limited 100% CCM Software Services Ltd 100% Italy Serco s.r.l 100% Guernsey Serco Insurance Company Limited 100% Luxembourg Serco Facilities Management S.A. 100% The Netherlands Serco Facilities Management BV 100% Spain Serco Gestion de Negocias SL 100% Sweden Serco Sverige AB 100% Switzerland Serco Facilities Management S.A. 100% Asia Pacific Australia Serco Group Pty Limited 100% Serco Australia Pty Limited 100% Great Southern Railway Limited 100% New Zealand Serco Group NZ Limited 100% Hong Kong Serco Group (Hong Kong) Limited 100% Other Canada Serco Facilities Management, Inc. 100% USA Serco Group, Inc. 100% Serco, Inc. 100% Serco Management Services, Inc. (Delaware) 100% Barton ATC, Inc. 100% Serco Management Services, Inc. 100% (Tennessee) JL Associates, Inc. 100% Notes to the Preliminary Announcement For the year ended 31 December 2002 32 List of principal undertakings Joint venture undertakings United Kingdom Premier Custodial Group Limited 50% Kilmarnock Prison Services 50% Limited Lowdham Grange Prison Services 50% Limited Medomsley Holdings Limited 50% Pucklechurch Custodial Services 50% Limited Moreton Prison Services Limited 50% Serco Gulf Engineering Limited 50% Defence Management Watchfield 50% Limited Laser (Teddington) II Limited 50% Altram (Manchester) Limited 26% Serco-Denholm Shipping Company 50% Limited AWE Management Limited 33% Asia Pacific Australia Defence Maritime Services Pty 50% Limited Serco Sodexho Defence Services 50% Pty Limited New Zealand Serco Sodexho Defence Services 50% Limited Other USA Serco - SKE 50% Bahrain Aeradio Technical Services WLL 49% Bermuda BAS-Serco Limited 40% Cyprus Serco Kalisperas 50% Dubai International Aeradio (Emirates) 49% LLC Saudi Arabia Key Communications Development 49% Co Limited Singapore Serco Guthrie Pte Ltd 50% Turkey Elektronik 51% Sistemier Destek Sanavi ve Ticaret AS Full details of related undertakings will be attached to the Company's Annual Return to be filed with the Registrar of Companies.

Companies

Serco Group (SRP)

Friday, 23rd August 2024

COMPANIES COVERED:

DLG EVOK THX

Direct Line fell as it has changed a key 2023 solvency capital ratio; Evoke gained as it announced the acquisition of Winner.ro; and Thor Explorations rose as record gold prices boosted second-quarter profits

Full Archive

UK 100

Latest directors dealings

1 day ago Premier Miton Group
1 day ago YouGov
1 day ago K3 Business Technology Group
1 day ago Foresight Group Holdings Limited NPV
1 day ago Investec

All directors dealings today